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B2B Organic Growth: Becoming Suppliers' Customer of Choice

by Amy Adkins and Marco Nink

Story Highlights

  • Suppliers can directly affect a B2B's customer engagement
  • Customer-of-choice status differentiates a B2B from its competitors
  • Three factors are essential to becoming a customer of choice

For business-to-business companies, striving to become a "customer of choice" for their suppliers isn't just a nice thing to do -- it's essential.

This might be especially true as B2Bs struggle to engage their own customers and ultimately achieve organic growth -- that is, get more business from existing customers. According to a recent Gallup report, just 29% of B2B customers are engaged, while 60% are indifferent and 11% are actively disengaged.

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Suppliers can make or break a B2B company's efforts to achieve organic growth. Gallup recently worked with a manufacturing company that was receiving a lot of negative feedback from its customers about late deliveries. At first, the manufacturer didn't understand why the anger was pointed in its direction. It believed that once the product left its plant, delivery was out of its hands. Eventually, the company realized that its suppliers' actions (in this case, freight operators and trucking companies) affected its customers' engagement, even if the company was not directly involved.

Not all suppliers directly affect customer engagement, but some do. Suppliers matter not simply because they provide a product or service, but because their actions have consequences -- positive or negative -- on the customer experience.

For the sake of their customers and their own business, companies need to rethink how they engage and interact with their suppliers. Organizations tend to look at their suppliers as their opponent when they can be a competitive advantage. Suppliers often have creative ideas or solutions to offer their clients, but those clients have to be willing to listen.

Becoming a "Customer of Choice"

Ultimately, companies should aim to become a true "customer of choice" with select suppliers. Achieving customer-of-choice status differentiates a company from its competitors and gives it a decisive competitive advantage. This status is especially valuable in crises, when the company needs flexible and non-bureaucratic support from its suppliers. Suppliers devote their full attention to a customer of choice and ensure that the best employees are working on these customers' projects. A customer of choice is likely to get access to innovative processes and technologies from suppliers, which can help the company develop new products and bring advances to the marketplace faster. Finally, a customer of choice gets more favorable terms than a competitor without this status.

Classifying Suppliers and Their Importance

A transportation client revealed to Gallup that 75% of its fleet was constructed with materials from suppliers. The client wanted to know if it was reasonable to assume that 75% of its customer engagement depended on its suppliers.

The company's suppliers did account for a portion of its customer engagement -- though not 75%. Companies often work with well-known or established brands to supply them with products, and those brands can and do have an impact on customers' perceptions and engagement. Companies must think about their supplier relationships to determine how those relationships come to life for their customers.

Of course, not every supplier relationship has the same value for a company or is equally necessary for the business' survival. Many companies benefit from evaluating and nurturing the full range of supplier relationships. For others, however, not all supplier relationships are equally valuable or equally consequential to the enterprise's health. In these cases, a clear supplier segmentation strategy is essential to differentiate suppliers that are "mission critical" from those that are not.

Measuring Supplier Relationships

Too many companies don't know whether they are a customer of choice with their key suppliers -- or what they can do to become one. Until now, there was no systematic, viable approach to measuring the quality of supplier relationships and to starting a dialogue between companies and their suppliers about the results. To develop an effective way to measure, manage and improve the quality of supplier relationships, Gallup collaborated with Mars, a leader in fast-moving consumer goods. Lessons gleaned from this business-to-consumer collaboration can apply to B2Bs as well.

Mars and Gallup began their work on supplier engagement because of Mars' experience with a strike in France that closed gasoline stations across the country. But one important supplier still had one truck with fuel available. Several customers fought over who would receive the truck, which could go to only one company. In the end, one of Mars' competitors received the truck, forcing Mars to reduce production in one of its plants. Because of this, Mars approached Gallup with an important question: "What can we do to become a customer of choice?"

Gallup started its search for the answer to Mars' question by assuming that the same rules and best practices that apply to managing supplier relationships also apply to managing employee and customer engagement. Companies must understand both the rational and emotional elements of engagement to create supplier engagement. The quality of the relationship is determined not only by hard factors, such as price, quality and physical availability, but also in the interactions between suppliers and customers.

Through years of experience in measuring and optimizing employee and customer engagement in companies worldwide, Gallup identified five core dimensions and 10 survey items that determine the quality of supplier relationships. Gallup purposefully designed the survey items to act as a diagnostic tool and conversation starter. The survey results show buyers how they rate with suppliers, but they also provide a type of script or guide for how to talk to suppliers about the results and the relationship.

Gallup's Supplier Engagement Construct
Dimension Definition
Clarity Reflects the clarity of expectations and the quality of communication pathways to ensure these are clear to all
Simplicity Reflects ways of working and, in particular, the ability to deliver excellence
Integrity Reflects the notions of trust and the ability to overcome problems to reach a mutual agreement
Reciprocity Reflects the value both parties place on the relationship
Connectivity Reflects the interdependence in the relationship and the recognition of shared outcomes
Gallup

Key Steps Companies Can Take

Once companies identify and assess their top suppliers, they can then turn their attention to maximizing those relationships. But it is important that both sides get something from the partnership. If a company asks a supplier to provide new ideas and invest its own time and money into making its packaging more appealing or speeding up its delivery process, for example, then the supplier can reasonably expect some payoff from the company.

Gallup has found that three factors are essential to becoming a customer of choice:

  • Engage your suppliers. Seek feedback, and listen.
  • Clearly communicate with suppliers. Willingly share information relevant to what the supplier company is trying to accomplish.
  • Be easy to do business with. Strive for clarity, simplicity and consistency.

A company that actively works to incorporate these three principles into its business practices is on its way to becoming a customer of choice.

John Fleming and Leslie Rowlands contributed to this article.

Gallup


Gallup http://www.gallup.com/businessjournal/191273/b2b-organic-growth-becoming-suppliers-customer-choice.aspx
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